Drewry: Container shipping in 'extended down cycle'

Drewry Maritime Research says the container shipping industry “remains in an extended down cycle” due to the entry of new and larger vessels across all trades.
The consulting firm’s Container Forecaster reported for the first quarter of the year that "some of these trade routes have also not lived up to expectations in terms of cargo flows and the sharp influx of many new ships of at least 8,000 TEUs,” which has resulted in significant declines in spot freight rates, particularly in the Asia-to-east coast South America trade.
Drewry has forecast a 5.7 percent global supply increase this year, followed by a 6.7 percent increase in 2015, with the emphasis on the delivery of 115 additional ultra-large containerships and a large number of vessels in the 8,000- to 10,000-TEU category.
“The orderbook’s momentum has not stopped and outside equity is fueling this. We know NYK will confirm an order soon and COSCO has now re-entered the fray. CMA CGM’s decision to upgrade some of its ships to the 18,000-TEU level may also instigate another injection of capacity,” Drewry said.
“For this year we are forecasting global demand growth of just over 4 percent, but we do not see any real opportunity for the industry to recover and draw breath until 2016, and this is still dependent on what happens with the orderbook,” the firm added.
Drewry noted even with scrapping rates at record highs, “the delivery profile in the next 24 months will continue to cause damage and carriers will have little if any long-term success with their constant general rate increase initiatives. On the contracting side, we also hear anecdotally that many contracts in the core east-west trades have been signed at the same level as in 2013 or in many cases, significantly lower.”
“Two major fights will continue for the carriers this year – to win contract and spot business. The larger battle will be waged in the spot market arena, which suggests that rate volatility will continue for the time being,” said Neil Dekker, Drewry’s head of container research.
Drewry said carriers are addressing vessel over-supply to varying degrees of success by using “levers” such as voided sailings, scrapping, idling vessels, slow steaming and new operational alliances and mergers. But the firm warned these practices alone “are not enough since freight rates are increasingly being dictated by carrier behavior and psychology, rather than the fundamentals.”
In another report released this week, Drewry said it anticipates better times for the multipurpose ship sector.